Tuesday, December 4, 2012

Where's the analysis?

A reader wrote to ask why I wasn't posting analysis every day like I used to?

Truth is, the signals that meet my rules just haven't been there. Perhaps the market is marking time while the Obama administration and the House Republicans work out a deal spending and taxes. Perhaps everyone has gone Christmas shopping.

Whatever the cause, I haven't been doing analysis because there is none worth doing under my rules.

On Monday, for example, I had half a dozen breakouts. Within an hour or two they had all melted away, as the price retreated to within the price channel. By my rules, the price must be beyond the price channel for me to open a position.

Today there were four breakouts, all bearish.

Yamana Gold Inc. (AUY) retreated back to within the channel. So I've reset the alert and will deal with it fresh on the next breakout.

The Gap Inc. (GPS) and two Chinese companies, SINA Corp. (SINA) and Baidu.com Inc. (BIDU), also broke out. So I checked the analyst ratings and calculated a trend score for each.

Analysts are slightly bullish on GPS, so the breakout runs counter to the consensus opinion. Analysts are neutral regarding the two Chinese companies.

The trend score looks at how many highs (in the case of a bear breakout) in the five days prior to breakout were lower than the high the day before. I combine that with the difference in the close the day before the breakout and the close on the fifth day prior to the breakout.

It's a way of figuring out how convincing a breakout is. Put another way, it tells me how likely I would expect a breakout to be before it actually happens. A good trend score is greater than one. Excellent scores ran run to three and more.

The scores are abysmal for the three. SINA was best with a miserable 0.49. GPS followed at 0.28, and  BIDU actually managed a score of negative 0.08 -- less than zero.

So these are not trades I would take.

Also, the stocks aren't just breakouts, but mega-breakouts, with declines of 6% to 8% from the prior day's close. Something like that, I usually want to wait for a reaction.

I'll look at all three tomorrow morning and see what they're doing. And when I start getting interesting signals, I'll do the analysis.

Readers interested in receiving alerts when something new is posted can follow Private Trader on Twitter at https://twitter.com/TimBovee or by liking Private Trader's Facebook page, https://www.facebook.com/PrivateTrader.


My trading rules can be read here.

And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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